SEC investigations can be a harrowing experience for the witness as well as the targets. One of the first questions my clients ask when faced with a subpoena from the SEC is how long is this going to take? While I hate to give the typical lawyer answer, that answer is, “it depends.”
It depends on the case. Investigations where the SEC believes there is an ongoing harm can be in court in a matter of days. In fact, some investigations move to court before the target is even aware of the investigation.
But that is rare, and it is hard to say how long an investigation takes. All SEC investigations are conducted privately. Investigators attempt to obtain facts and evidence, first through informal inquiries, then by examining brokerage records, and reviewing trading data, and then by serving subpoenas for documents, and ultimately testimony.
In theory, there is a statutory requirement that the SEC is required to bring an action within 5 years:
28 U.S.C. § 2462 states that “[e]xcept as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.”
However, this is subject to interpretation, the most significant of which is “when the claim first accrued.”
Investigations begin with a Formal Order of Investigation, which, among other things, allows the Staff to subpoena witnesses to testify and produce documents.
It is not until that process is completed that the investigation is “finished.” At that time a decision is made to file a case in federal court or bring an administrative action. In many cases, the Commission and the party charged decide to settle a matter without trial, and in others, the matter is simply dropped.
If there is a decision to charge someone, the Staff will typically send a Wells Notice to that individual or entity, notifying them that the Staff intends to file proceedings.
However, when the SEC decides not to file a proceeding, there are limits on who the Staff is required to notify.
Specifically, the Staff must notify anyone who:
- is identified in the caption of the formal order;
- submitted or was solicited to submit a Wells submission; or
- to the staff’s knowledge, reasonably believes that the staff was considering recommending an enforcement action against them.
The Staff must also notify any person who was involved, who asks to be notified, but the reality is, witnesses who have received subpoenas often never hear back from the SEC.
For the target or potential target of an investigation, we can usually provide a good estimate on the length of time the investigation may take, based on the details of the case, the urgency of the matter and our discussions with the Staff, but targets and witnesses need to hire experienced securities counsel to make that happen.
You may also be interested in:
- UBS Ordered to Pay Broker $1.6 Million
- This is Your Life – Your CRD Record
- How Long Does an SEC Investigation Take?
- The Wells Notice SEC/FINRA Investigations
- SEC Subpoenas – Tips for Responding
Mark J. Astarita, Esq. represents investors, financial professionals and firms in litigation, arbitration and regulatory matters across the country. He is a partner in the national securities law firm of Sallah Astarita & Cox, LLC and can be reached by email at firstname.lastname@example.org or by phone at 212-509-6544.
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